TaxTMI 
TaxTMI 
2011 (7) TMI 818
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....appellants were traders in shares ; they had classified their activities, for the assessment year 2005-06, into three categories, i.e., business income, short-term capital gains before October 1, 2004, and after October 1, 2004 ; in respect of some of the transactions, effected during the period April 1, 2004, to March 31, 2005, the assessee had admitted that it was business income ; however, in view of the insertion of section 111A with effect from October 1, 2004, the assessee had segregated certain transactions pertaining to trading in shares into two categories, i.e., trading carried on during the period April 1, 2004, to September 30, 2004, and during the period October 1, 2004, to March 31, 2005 ; the income-tax rates before October 1, 2004, both for business income and short-term capital gains on the sale of shares was the same ; segregation of transactions relating to sale of certain shares from the business income for the period April 1, 2004, to September 30, 2004, was accepted as it did not make any difference in terms of tax ; and in view of the insertion of section 111A to the Act with effect from October 1, 2004, the assessee had again segregated the transactions for ....
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....in" to mean capital gain arising from the transfer of a short-term capital asset. Under section 28(i) of the Act, the profits and gains of any business carried on by the assessee, at any time during the previous year, is chargeable to income-tax under the head "profits and gains of business or profession". Under section 45(1) of the Act, any profits or gains arising from the transfer of a capital asset effected in the previous year is deemed to be income of the previous year in which the transfer took place. Section 111A, inserted by the Finance Act, 2004, relates to tax on short-term capital gains in certain cases and, under sub-section (1) thereof, where the total income of an assessee includes any income chargeable under the head "Capital gains", arising from the transfer of a short-term capital asset being an equity share in a company and such transaction is chargeable to securities transaction tax, the tax payable by the assessee shall be the aggregate of the amount of income-tax calculated on such short-term capital gains at the rate of fifteen per cent. 5. If the shares purchased by the appellants are held to be capital assets, sale of such shares could fall within t....
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....e falls within the former category, receipts by way of sale of such shares will be capital receipts but if it falls within the latter the receipts will be trading receipts and profits therefrom business income. In deciding this question the object with which such operations are carried on assumes importance. 8. Where the owner of an investment chooses to realise it and obtains a greater price for it than the price at which he originally acquired it the enhanced value obtained from the realisation or conversion of securities may be profit from business. The simplest case is that of a person buying and selling securities speculatively in order to make gain or is dealing in such investments as a business and is thereby seeking to make profits (Khan Bahadur Ahmed Alladin and Sons v. CIT [1968] 68 ITR 573 (SC) ; [1968] 2 SCR 439 ; Californian Copper Syndicate Ltd. v. Harris [1904] 5 TC 159 ; CIT v. Sutlej Cotton Mills Supply Agency Ltd. [1975] 100 ITR 706 (SC) ; [1975] 2 SCC 538 and Venkataswami Naidu and Co. v. CIT [1959] 35 ITR 594 (SC) ; AIR 1959 SC 359). The distinction whether the investment transaction is a mere realisation of the investment or an act done for making profi....
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....ination of facts (Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC) ; [2004] 10 SCC 1). 10. Where the purchase of any article or of any capital investment, for instance, shares, is made without the intention to resell it at a profit, a resale under the changed circumstances would only be a realisation of capital and would not stamp the transaction with a business character (CIT v. P. K. N. Co. Ltd. [1966] 60 ITR 65 (SC) ; AIR 1966 SC 1256 ; Sutlej Cotton Mills Supply Agency Ltd. [1975] 100 ITR 706 (SC) ; [1975] 2 SCC 538). A capital investment and resale do not lose their capital nature merely because the resale was foreseen and contemplated when the investment was made and the possibility of enhanced values motivated the investment (Leeming v. Jones [1930] 15 TC 333 ; Saroj Kumar Mazumdar v. CIT [1959] 37 ITR 242 (SC), Janki Ram Bahadur Ram v. CIT [1965] 57 ITR 21 (SC) and Sutlej Cotton Mills Supply Agency Ltd. [1975] 100 ITR 706 (SC) ; [1975] 2 SCC 538). Where a purchase is made with the intention of resale, it depends upon the conduct of the assessee and the circumstances of the case whether the venture is on capital account or in the nature of trade. A tran....
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....d on by the assessee, though not directly part of it, an intention to carry on trade may readily be inferred. The magnitude, the frequency and the ratio of sales to purchases and the total holdings is evidence from which the Tribunal can come to the conclusion as to the true nature of the activities of the appellant (Raja Bahadur Visheshwara Singh [1961] 41 ITR 685 (SC) ; [1961] 3 SCR 287). 14. No single criterion is decisive in determining the question whether a particular receipt is capital or revenue. The answer to the question must ultimately depend on the facts of each particular case (CIT v. Saurashtra Cement Ltd. [2010] 325 ITR 422 (SC) ; [2010] 11 SCC 84) and the conclusion of law to be drawn from those facts (Saurashtra Cement Ltd. [2010] 325 ITR 422 (SC) ; [2010] 11 SCC 84. CIT v. Rai Bahadur Jairam Valji [1959] 35 ITR 148 (SC) ; AIR 1959 SC 291 ; Davies (H. M. Inspector of Taxes) v. Shell Co. of China Ltd. [1951] 32 TC 133 ; [1952] 22 ITR (EC) 1 (CA)). This is a question of fact to be determined on an application of the broad principles and courts would not ordinarily interfere with the findings of fact if they have been arrived at on a proper application of the ....
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.... same scrips repeatedly and were switching from one scrip to another ; (k) the dominant impression left on the mind was that the assessees had not invested in shares ; (l) mere classification of these share transactions as investment in the assessee's books of account was not conclusive ; (m) the intention of the assessees at the time of purchase was only to sell the shares immediately after purchase ; (n) frequency of purchase and sale of shares showed that the assessees never intended to keep these shares as investment ; and (o) it is only for the purpose of claiming benefit of lower rate of tax under section 111A of the Act that they had claimed certain shares to be investment though these transactions were only in the nature of trade. 16. The character of a transaction cannot be determined solely on the application of any abstract rule, principle or test but must depend upon all the facts and circumstances of the case. Ultimately, it is a matter of first impression with the court whether a particular transaction is in the nature of trade or not (Sutlej Cotton Mills Supply Agency Ltd. [1975] 100 ITR 706 (SC) ; [1975] 2 SCC 538). If, on th....